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Here’s some advice that college graduates won't hear in a commencement speech

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Published: May 9, 2016 2:12 p.m. ET

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Consolidate your retirement savings as you change jobs

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Many memorable commencement speeches have been delivered since the advent of higher education. Last year at this time, NPR compiled over 350 of the most inspiring commencement addresses going back to 1774. We won't try to compete with the inspirational oratory of the notable figures whose speeches are included in NPR's compilation, but nevertheless, we have an important message for new graduates to keep in mind as they pursue their dreams and begin their careers.

Today's college graduates enter a workforce that is more mobile than ever before. The Employee Benefit Research Institute (EBRI) estimates that the average worker will change jobs at least 7.4 times during a 40-year career. In order to save enough money to achieve their goals and dreams for retirement—and yes, we know it's a long way off!—today's graduates need to participate in a retirement savings program immediately upon entering the workforce, never cash out those savings, and routinely consolidate them in their new-employer plan as they move from job to job.

Unfortunately, too many workers of all ages don't participate in a retirement plan, and if they do, they either cash out their 401(k) balances, or leave them behind in their former employers' plans, when they switch jobs. These are harmful decisions that will deplete retirement savings over the long term. Workers who cash out lose money twice—once when they actually cash out, and again at Tax Day. In addition to having to pay Uncle Sam more on April 15, savers who cash out are subject to early withdrawal penalties that reduce the sum they receive, and also lose compound earnings and interest they would have accrued had the savings remained invested.

We have calculated that a hypothetical 30-year-old who cashes out a $5,000 401(k) savings account today would forfeit as much as $52,000 in lost earnings and appreciations by age 65. Furthermore, Aon Hewitt found that a hypothetical worker who cashes out three times during their working life would cut their retirement savings from over 6 times pay to 1.25 times pay.

Leaving accounts behind in a former employer's plan is also a costly decision that today's graduates would regret when they reach retirement. Workers with multiple retirement savings accounts have to pay fees for each open account, and lose money on the lost earnings and compound interest that those fees would have yielded. Even one extra retirement savings account can deplete nearly $7,000 from a retirement nest egg.

Indeed, a 2015 study of mobile workforce behaviors conducted by Boston Research Technologies found that 32.8% of workers left behind their retirement savings in their most recent former-employer plan rather than embarking on a roll-in—but as noted above, this can be a costly decision! All workers need to do is ask their employer's human resources department (which may even pay for some or all of the cost of a roll-in) to help them get started. The Plan Sponsor Council of America's latest annual survey of profit-sharing and 401(k) plans, published this past January, reported that 97.6% of 401(k) plans can accept roll-ins from other plans.

Going forward, the White House's recent proposals to make it easier for more Americans to seamlessly move their retirement savings between employers may well result in the creation of a national network that will facilitate widespread, frictionless plan-to-plan portability. Until then, though, workers can retain a third-party roll-in service provider for a flat fee, or, once again, ask if their current employer will foot some, or all, of the bill in exchange for handling the roll-in process. The Boston Research Technologies study found that 62% of workers who completed a roll-in did so with assistance.

College graduates will definitely learn the value of a dollar when they enter the workforce. In order to achieve the dreams that commencement speakers encourage them to follow, they need build a foundation of financial security as early in their career as possible. Forgetting about, or simply leaving behind, even one 401(k) savings account when switching jobs can cost nearly $7,000 each time they change jobs—a very costly lesson.

Commencement speakers very rarely, if ever, discuss retirement-saving, so college graduates reading this article should accept this pearl of wisdom as a supplement to what they hear at commencement this year: Follow your dreams, reach for the stars, but you need to save properly in order to reach them. And consolidating your retirement savings accounts in your current-employer plan as you move from job to job is the best route to helping you achieve a financially secure retirement.

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